David Lichtenstein

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This article is about the businessman. For the dancer and choreographer David Lichine (born Lichtenstein), see David Lichine.
David Lichtenstein
Born David Lichtenstein
1960 (age 64–65)
Ethnicity Jewish
Occupation CEO, Real Estate
Years active 1988–present

David Lichtenstein is the CEO of The Lightstone Group, which he founded in 1988 and is one of the largest privately held real estate companies in the United States. Lichtenstein directs all aspects of the acquisition, financing and management of a diverse portfolio of multi-family apartments, in addition to office, lodging, retail and industrial property in 24 states, the District of Columbia, Puerto Rico and Canada.[1][2]

Early career

Born to a Jewish family,[3] Lichtenstein launched his real estate career with one building and a loan. And he bought that debut investment in a two-family home in New Jersey with a $12,000 down payment raised by maxing out a credit card and tapping out a small savings account.[1] Over the next couple of years, Lichtenstein used the cash his properties generated, leveraged with loans, to keep buying. Three years later, in 1988, he founded The Lightstone Group, quickly growing the company into one of the biggest private property holders in the U.S.[4] By 2003, Lightstone was recognized as one of the most active property buyers in the U.S., with an estimated worth of $1 billion to $2 billion.[1] By 2005, that worth had grown to an estimated $3 billion.[5]

Today, Lightstone ranks among the top 25 largest real estate companies in the United States,[6] and employs approximately 1,150 staff and professionals. Lightstone has offices in New York City, as well as in New Jersey, Maryland and Illinois.

Strategy

Lichtenstein's strategy has expanded over the years, but its cornerstone remains a willingness to seek out properties that offer the prospect of high returns and have challenges or complexities that limit their appeal to other investors, including properties with distressed capital structures.[7] Although the risks of this strategy are often publicly documented, the returns are quietly pocketed: closely held Lightstone has averaged more than 30% annual returns over much of its existence.[4]

David has publicly spoken that he made risky investments in the past. He even shared some of his business tactics by saying that it is clever to buy land, instead of the homes that are build on it.[8] Lichtenstein has even publicly spoken about the risks and predictions in the Commercial Real Estate on CNBC [9] and Bloomberg.[10]

Lightstone continues seek new acquisitions across the country in both urban and suburban locations and across a wide range of property types, including industrial, office, retail, multifamily and hospitality.[7]

Deals

After a strong trend of industry growth through the 1990s, housing investments that delivered cash flow became increasingly difficult to find, and Lichtenstein began to expand his focus. In 2000, Lightstone began acquiring retail properties — first strip centers, then malls.[11]

In 2002, Lichtenstein purchased a Puerto Rico-based outlet mall from Prime Retail, a Chicago-based REIT, for $36.5 million. This modest purchase of Prime Outlets opened the door to what is Lichtenstein's most talked about acquisition to date.[12]

In 2003, Lichtenstein inked the deal that would later be one of his most acknowledged successes – the purchase of the entire Prime Retail portfolio for about $638 million, pulling in 37 properties from places such as Pleasant Prairie, Wis., Odessa, Mo., and Gaffney, S.C. The acquisition made Lightstone the second-largest owner of outlet malls in the country after Chelsea Premium Outlets, owned by Simon Property Group Inc., the nation's largest mall owner.[4] With the purchase of Prime, Lightstone also took control of some famous Chicago commercial spaces, including such world-renowned buildings as the Mies van der Rohe-designed IBM Plaza, 208 S. LaSalle Street and the United Building.[13]

Lichtenstein continued to add to this portfolio until 2010, when he sold it to Simon Property Group for a total of $2.3 billion – $700 million in cash and the assumption of $1.6 billion in debt. The price tag reflected a significant increase from what Lightstone paid for Prime in 2003: $115 million in cash and the assumption of $523 million in debt. After paying its 40% partner in Prime, fees and other expenses, Lightstone made about $450 million on the sale.[14]

In 2006, Lichtenstein returned to his housing roots, making some high-profile deals in the affordable housing sector. In May 2006, he contracted to buy 19 Detroit-area multifamily rental complexes from REIT Home Properties for $200 million,[15] and later that year he acquired a series of Birmingham, Ala., apartments for a total of $303 million.[16]

In 2007, the real estate investor again broadened his strategy, entering the hospitality sector. In another newsworthy deal, with an $8.1 billion price tag, Lightstone acquired Extended Stay Hotels, the largest, mid-price extended-stay hotel company in the United States, with 683 hotels and approximately 76,000 rooms located in 44 states and Canada.[17]

But by late 2007 and early 2008, Lichtenstein's Lightstone, like many real estate companies, began feeling the pinch of the Global Financial Crisis of the late-2000s. Considered by many economists to be the worst financial crisis since the Great Depression of the 1930s, the crisis resulted in the collapse of large financial institutions, the bailout of banks by national governments and downturns in stock markets around the world. In many areas, the housing market also suffered. The hospitality sector was not immune and room occupancy in the extended-stay hotel sector, which is aimed at construction workers and other employees on temporary assignments, was showing signs of decline by the end of 2007.[18] On June 15, 2009, Extended Stay Hotels filed for bankruptcy protection. The timing of the Prime sale with the Extended Stay bankruptcy led a Wall Street Journal reporter to quip: "Buying Prime Outlets Inc. in 2003 was one of the best investments that New York investor David Lichtenstein ever made. Now selling the chain of outlet centers is giving him the cash to bail himself out of his worst deal ever."[14] The $450 million profit on Prime more than offset the $80 million loss on Extended Stay.[14]

In addition to the loss of Lichtenstein's initial investment, the bankruptcy filing possibly triggered a clause in Extended Stay's financing documents that would require a personal liability payment by Lichtenstein of $100 million.[19] However, Lichtenstein was able to negotiate an indemnification for the $100 million liability from the companies lenders in exchange for giving up control of the company.[20]

As part of a new marketing strategy in 2008, Lightstone Group rebranded its residential subsidiary, Beacon Management, as Cedarbridge Residential. The firm also tapped 20-year multifamily industry veteran Jack Cassidy to head up the operation as president. The change brought all of Lightstone's apartment business, which comprises roughly a third of the overall company, under one umbrella.[21]

In October 2008, Lightstone turned over two malls to the lender; Macon, Ga., and Burlington Square, N.C. Shortly after defaulting on these two malls, four additional malls were turned over to the lender Martinsburg Mall in Martinsburg, W. Va.; Mount Berry Square Mall in Rome, Ga.; Shenango Valley Mall in Hermitage, Pa.; and Bradley Square Mall in Cleveland, Tenn.[22]

Throughout 2008, 2009 and 2010, Lichtenstein continued to add value to properties through renovation,[23] securing long-term leases with strong retailers and attracting senior staff.[24][25]

By the end of 2010, with more than $350 million his non-traded REITs and private funds, and "a big war chest" from the Prime sale, Lichtenstein geared up for an active 2011:[26]

  • In February, Lightstone bought Festival Bay Mall in Orlando, Fla., for $25 million, partnering with Paragon Outlet Partners.[27]
  • In March, it was Crown Plaza Boston North Shore, for $10 million, considered "a big score in a tough market."[28]
  • In May, the firm broke ground on a new outlet center in Grand Prairie, Tx.[29]
  • In June, Lightstone purchased close to 24 acres in southwest Las Vegas Valley for $4.4 million – its prior owners had bought it just four years before for more than $30 million.[30]
  • In July, the firm purchased a senior position in Holiday Inn Express Hotel & Suites Tower Center, East Brunswick, N.J., for $5.6 million.[31]
  • In August, Lightstone acquired a residential development site in Long Island City, N.Y., for $19.3 million, with intentions to build out more than 200 apartment units.[32]
  • In October, Lightstone launched a New York City apartment development firm, called Phoenix Development Partners, with the mission of developing large-scale rental housing in all five boroughs.[33]
  • In November, Lightstone purchased the senior mortgage of Marriott Courtyard in Parsippany, N.J., for $9.2 million,[34] as well as the Plaza at DuPaul retail center in St. Louis, Mo., for $19.8 million.[35]

By the end of 2012, Lightstone predicted that real estate investment trusts will continue to attract institutional investors looking to invest in single-family housing.[36]

In 2013, Lichtenstein traveled to Israel to enter the Israeli capital debt market.[37] Later in 2015, he told the Wall Street Journal that he would borrow money from there again,[38] as he explained that these loans are used for the construction of the 700-unit apartment building near Brooklyn’s Gowanus Canal.[39]

In 2014, Lightstone was about to build a 48 story, 452 unit tower in lower Manhattan, between 112 and 120 Fulton.[2] After they failed to win approval for a 421-a tax abatement on 120 Fulton they revised the design of the tower into a higher 460 unit 59 story, between 112 and 118 Fulton.[40] Later this year Lichtenstein made a deal with Carmel Partners and sold the site for more than $170 million.[41][42]

Expanded Strategy - REITs

In the middle of 2006, Lichtenstein entered uncharted territory with the launch of a $300 million real-estate investment trust, which allowed Lightstone to raise money from outside investors for the first time.[4] The non-traded Lightstone Value Plus REIT invested in a mix of office, retail and other commercial properties, and by the end of 2009 was fully invested in a total of 30 properties.[43]

Overall investment market instability in the late 2000s led to both non-traded and publicly traded REITs attracting attention from investors. Lichtenstein formed Lightstone Value Plus just before the non-traded REITs reached their first peak. But in 2011, non-traded REITs raised an estimated $9 billion, close to the 2007 high, as investors were drawn to their median 6.5% yield. The regular income stream generated by REITs has been a boon to these investment vehicles, despite their lack of liquidity.[44]

By the end of 2011, Lightstone Value Plus was the 18th largest non-traded U.S. REIT and had generated a dividend stream of 7%, above that of the two largest non-traded REITs in the country, Inland American Real Estate Trust (5%) and Inland Western Retail Real Estate Trust (2.55%).[45]

In the summer of 2010, Lichtenstein went to market again offering Lightstone's second, non-traded REIT (Lightstone Value Plus II), which followed a similar investment strategy to its debut fund, committing capital to the hospitality, retail, multi-family and commercial segments. The Lightstone Group was a significant investor of the fund, committing 10% of the capital raised by the REIT and paying 100% of the front-end costs of the offering.[46]

By December 2011, LVPII had invested in six properties, including the Crowne Plaza Boston hotel, Saxon Hall Rego Park, TownePlace New Orleans Metairie hotel in New Orleans.[47]

In September 2012 they invested in a 199-unit residential development located at 50-01 2nd Street in Long Island City.[48][49][50][51]

In January 2013 The Lightstone Value Plus Real Estate Investment Trust, Inc. (LVPR) announced that it acquired three Marriott-branded hotels in Iowa and Ohio for $21 million.[52]

Professional Organizations

Lichtenstein is on the Board of Governors of the Real Estate Board of New York, a Trustee of the Citizens Budget Commission, and is a Member of the Real Estate Roundtable and Co-Chair of the Real Estate Capital Policy Advisory Committee. Mr. Lichtenstein was appointed by New York City Mayor Bill de Blasio to the NYC Economic Development Corporation’s Board of Directors. The NYCEDC is New York City’s primary economic development vehicle. Mr. Lichtenstein is a member of The Economic Club of New York. He is also a trustee of The Touro College and University System and sits on the Board Supervisory Committee for The New York Medical College. Mr. Lichtenstein is a founder of the Friendship House, an organization that provides housing near hospitals for families that want to be near loved ones in times of need.[53][54]

Philanthropy

David Lichtenstein and The Lightstone Group support a number of social causes, donating funds and property to help those in need. Lichtenstein makes regular contributions to the New York chapter of the Special Olympics and New York Cares. He also supports the work of Memorial Sloan-Kettering Cancer Center; and both he and Lightstone Group give to Matt’s Promise and Hospice of Virginia.

In September 2005, The Lightstone Group donated 50 Memphis apartments to help Hurricane Katrina victims in need of housing following the storm, offering the apartments rent-free for six months.[55] "We are fortunate to have the ability to house families affected by this traumatic event and can only hope that in some small way, those affected by this tragedy will be able to take some comfort in receiving this temporary shelter," Lichtenstein said.[56] Lichtenstein himself matched contributions to relief efforts dollar-for-dollar from all employees in The Lightstone Group's family of companies — The Lightstone Group, Prime Retail Inc., Prime Group Realty Trust (PGRT), Park Avenue Funding, LLC, Park Avenue Bank, Lightstone Securities and Lightstone Value Plus Real Estate Investment Trust.[56]

Following Hurricane Sandy in November 2012, The Lightstone Group donated more than 11,000 square feet of office space at 1407 Broadway to assist businesses affected by the storm. More than 17 million square feet of office space in lower Manhattan had been shuttered in Sandy's aftermath.[57] The donation — in collaboration with the city Economic Development Corporation — allowed the businesses to remain in the Manhattan offices for as long as six months.[58][59]

References

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